Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, March 9, 2011

Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses

Posted by D. Daniel Sokol

David S. Evans, University of Chicago Law School, University College London, Robert E. Litan, Ewing Marion Kauffman Foundation, AEI-Brookings Joint Center for Regulatory Studies, and Richard Schmalensee, Massachusetts Institute of Technology (MIT) - Sloan School of Management raise some very serious concerns with their Economic Analysis of the Effects of the Federal Reserve Board’s Proposed Debit Card Interchange Fee Regulations on Consumers and Small Businesses. This paper is highly recommended.

ABSTRACT: This paper examines the impact of the reductions in interchange fees proposed by the the Federal Reserve Board on consumers and small businesses. We find that consumers and small business would face higher retail banking fees and lose valuable services as banks rationally seek to make up as much as they can for the debit interchange revenues they will lose under the Board’s proposal. The number of unbanked consumers would increase as lower-income households reduce the use of higher-priced accounts. Small businesses would lose in the first 24 months the proposed rules are in effect because of the offsetting increase in bank fees. Most of these small businesses do not accept debit cards and therefore would not have any offsetting benefits from lower interchange fees. Large retailers would receive a windfall.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/03/economic-analysis-of-the-effects-of-the-federal-reserve-boards-proposed-debit-card-interchange-fee-r.html

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